Contents
Key Takeaways🔑
| →The Elder Ray Index is a trend-following indicator that measures buying and selling pressure in the market. |
| →Developed by Dr. Alexander Elder, the indicator consists of two components: Bull Power and Bear Power. |
| →Traders often use the Exponential Moving Average (EMA) in combination with the Elder Ray Index to confirm the trend direction. |
Introduction to the Elder Ray Index
In 1989, Dr Alexander Elder has developed a technical tool that is now known as the Elder Ray Indicator because it was invented to scan the market in the manner of an X-ray device. Its main purpose is to measure the selling and buying pressure in the market. It is a trend-following indicator that can help traders to find the points of entry and exit for their trades.
Chart preparations
To use the Elder Ray Index you must first add it to the chart. Log in to your IQ Option trading account, and choose the asset and the chart timeframe. Then, click on the Indicators icon. You will see a list of the indicator categories. Select ‘Other’ and another list will unfold. The Elder Ray Indicator should be in there. Click on its name and it will be added to your chart.
Elder Ray indicator explained
Dr Elder’s tool is composed of two indicators. One is named the Bear Power and the other one is the Bull Power. The Bear Power is in the form of red bars and the Bull Power is represented by green bars. They develop around the middle line with the value of 0. The indicator’s default period is set at 13.
You can see the Elder Ray Index in the form of a histogram beneath the price chart of the instrument you have chosen.
Using the Elder Ray Index in trading on IQ Option
It is very common to use the Exponential Moving Average together with the Elder Ray Indicator. The EMA is used as a confirmation of the direction of the trend.
Pros and Cons of the Elder Ray Indexđź‘Ťđź‘Ž
- âś… Can help traders identify entry and exit points in the market
- âś… Incorporates both buying and selling pressure for a comprehensive analysis
- âś… Can be used in conjunction with other indicators, such as EMA, for more accurate signals
- ❌ As a lagging indicator, it may produce trading signals with some delay
- ❌ Requires additional analysis tools to improve accuracy and reduce false signals
| Elder Ray Index Components | Description |
|---|---|
| Bull Power | Measures the strength of buyers in the market |
| Bear Power | Measures the strength of sellers in the market |
| Exponential Moving Average (EMA) | Averages past prices to identify trends and is often used in combination with the Elder Ray Index |
Opening a position for the price decrease
There are a few conditions that have to be met in order to open a short position. First, the EMA should move downwards which indicates the downtrend in the market. Second, the Bull Power is visible above the middle line, in positive territory, and is diminishing (bulls are getting weaker). And lastly, the Bear Power is falling.
Opening a trading position for the price increase
In order to open a long trade, you are waiting for the uptrend in the market which may be confirmed by rising EMA. The second condition is that Bull Power’s latest peak is higher than the previous one, which means the bulls are getting stronger. Lastly, the Bear Power is located in negative territory and rising, which means it is getting weaker.
Summary
The Elder Ray Index measures the buying and selling pressure in the market. It offers trading signals confirmed by the sloping Exponential Moving Average. The Elder Ray Index consists of two indicators the Bull and the Bear Power. The trading positions can be entered when divergences between the Bull or Bear Power and the prices are spotted. Long trades are welcomed when the Bear Power’s values are below 0 but rising. A short position may be opened when the Bull Power is positive in value but falling.
The indicator is usually based on a 13-day EMA, although you may experiment with different values. For instance, Elder himself was using a 26-day EMA with weekly charts.
Using a moving average in its calculations makes the Elder Ray Index a lagging indicator. It means it may produce trading signals with some delay. Bear it in mind and utilise extra analysis tools.
It is always a good idea to check new indicators in the demo account offered by IQ Option for its users completely for free. After some practice, you will know the indicator well and be ready to invest real money in the live account.
Wish you high profits!
Q&A: Understanding the Elder Ray Indexđź’ˇ
- Q: What is the main purpose of the Elder Ray Index?
A: The main purpose of the Elder Ray Index is to measure the buying and selling pressure in the market, helping traders identify entry and exit points for their trades.
- Q: How is the Elder Ray Index composed?
A: The Elder Ray Index is composed of two indicators: Bull Power (measuring the strength of buyers) and Bear Power (measuring the strength of sellers).
- Q: What is the significance of the Exponential Moving Average (EMA) when using the Elder Ray Index?
A: Traders often use the EMA in combination with the Elder Ray Index to confirm the direction of the trend and improve the accuracy of trading signals.
- Q: Why is the Elder Ray Index considered a lagging indicator?
A: The Elder Ray Index is considered a lagging indicator because it uses a moving average in its calculations, which may produce trading signals with some delay.
- Q: How can traders improve the accuracy of the Elder Ray Index?
A: Traders can improve the accuracy of the Elder Ray Index by using additional analysis tools and by experimenting with different EMA values.